MPs: Taxpayer Short-Changed On Royal Mail Sale

By Mark Kleinman, City Editor

The controversy over the £3.3bn privatisation of Royal Mail has erupted again as an influential group of MPs has criticised Vince Cable over his handling of the sale.

In a coruscating report, the Business, Innovation and Skills (BIS) Select Committee endorsed the view of the National Audit Office (NAO) that taxpayers had been left short-changed by Royal Mail's flotation.

MPs said the taxpayer may have lost out by up to £1bn.

Cable was criticised for referring to the share price increase as 'froth'

The MPs said that Mr Cable and his officials had been gripped by "a fear of failure", placing undue emphasis on the risks of a strike by Royal Mail workers when pricing shares in the company at 330p last autumn - well below the projections of some investment banks.

Confirming Sky News' exclusive report earlier this week the committee said Mr Cable had been wrong to label the instant post-privatisation surge in Royal Mail's share price as "froth".

"The Secretary of State's initial use of the term referred to the 'immediate aftermath' of the flotation. This was subsequently extended to months and then possibly years," the report said.

"As a result we do not find the argument of 'froth' as a credible response to the significant increase in the share price."

The MPs added that the Government had been served poorly by its City advisers, who they argued had made insufficient effort to maximise Royal Mail's value during the privatisation process.

And they said that taxpayers would miss out on future increases in the value of potentially lucrative property assets.

Friday's report comes nine months after Royal Mail was sold in the biggest state sell-off for a generation.

It threatens to prolong the debate over the sale even as ministers contemplate the future of taxpayers' remaining 30% shareholding in the company.

The Government sold 60% of Royal Mail to outside investors last October, including a significant chunk to more than a dozen so-called priority investors who were earmarked as long-term shareholders.

Shares in Royal Mail surged more than 35% on the first day of trading

These institutions, some of which sold their stakes within days of the flotation after the shares surged, included the Kuwait and Singapore sovereign wealth funds as well as the asset management arm of Lazard - ministers' independent adviser on the sale.

The BIS Committee's recommendations include a ban on independent advisers to the Government being allowed to buy shares during future asset sales.

People close to Lazard pointed out that its fund management arm is segregated from the advisory business which worked on the sale.

The post-flotation hike in Royal Mail's share price, which included a rise of more than 35% on the first day of trading, sparked criticism that the stock had been undervalued.

Although the shares have retreated from their post-privatisation peak, they were trading on Wednesday at around 474p, roughly 45% higher than the price at which they were sold by the Government.

Mr Cable embarked on an attempt to head off criticism over the sale earlier this week when he announced that Lord Myners, the former City minister, would undertake a review of the structure of Government privatisations.

Shadow business secretary Chuka Umunna said Mr Cable had presided over a "first-class short-changing of the taxpayer".

"Taxpayers have been short-changed to the tune of hundreds of millions of pounds while large City investors, who were placed at the front of the queue by ministers, have been laughing all the way to the bank at the public's expense," he said.

"There are a huge number of questions which ministers need to answer on the mistakes which have been made."

A further report on Royal Mail's sale is expected to be published by the Commons Public Accounts Committee within weeks.

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